Worldwide Practices: Population Growth for Economic Expansion

Population growth in a country leads to economic growth, but how can we harness that into a long-term strategy we can all share for achieving economic expansion while reaching for individual sustainable prosperity?

Numerous economic studies show that the most prosperous countries generally have slower rates of population growth, a phenomenon called the "demographic-economic paradox." It's a paradox because a lot of wise people, including Thomas Robert Malthus, have theorized that prosperous societies will have more children because they can afford them. Not so, apparently.Photo by Fotolia/José Luis Sánchez Ma

In "Beautiful and Abundant," Bryan Welch gives the mindset, plans of action and reflection questions for creating sustainable projects and businesses. Is it beautiful? Is it abundant? Is it fair? Is it contagious?Cover courtesy B&A Books

Humanity is at a turning point. Only one species in the universe can recognize its own impact on its habitat, so far as we know, and we are that species. In Beautiful and Abundant (B&A Books, 2010), Bryan Welch discusses the challenge the human population must face—sustaining our quality of life on this miraculous, but finite sphere we call earth. The following excerpt from Chapter 7, “The Big Ponzi,” discusses the relationship between economic growth and human population growth.

In Italy, the human population is officially stable. According to the U.S. Census Bureau, which keeps track of populations around the world, Italy gained about a million people between 1995 and 2005, but has now stabilized around 58 million legal residents.

Likewise Spain. Spain's official population is projected to be stable around 40 million people for the foreseeable future. Germany is steady at 82 million. And Finland. Stable at about 5 million people.

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Numerous economic studies show that the most prosperous countries generally have slower rates of population growth. Economists have even given the phenomenon a name. They call it the "demographic-economic paradox." It's a paradox because a lot of wise people, including Thomas Robert Malthus, have theorized that prosperous societies will have more children because they can afford them. Not so, apparently.

As developing nations achieve a certain level of prosperity, the health and education level of their citizens improves. When a society improves health and education—for women, specifically—the birth rate falls. Prosperous people recognize the incentives for raising small families. In more prosperous countries, the quality of life is determined more by the family's overall level of education than by the number of laborers in the household. And affluent people in the world today are reasonably confident that all their children will survive to adulthood. In poor countries with high childhood-mortality rates it makes sense to hedge your bet on your offspring by having more of them.

In much of the world, a large family is a genetic—and social insurance policy.

Poor people, if they want to be cared for in their old age, can improve their chances by having more children. If you're very poor, your children are your employees, your economic safety net and, eventually, they provide your nursing home in their own houses.

Also, of course, the world's poorest people often don't have access to health education or birth control, for that matter.

Birth rates in Spain, Germany, Finland, France and Italy are even with or below mortality rates.

The governments of those nations and most other relatively wealthy nations around the world have chosen to buttress their sagging populations by admitting immigrants. It is a widespread strategy. Sometimes it appears to be an altruistic strategy. Immigrants find economic opportunity in their new, more affluent surroundings. Most Americans can tell an inspiring story of some immigrant ancestor who came to the Western hemisphere and found prosperity here.

In fact, however, immigration provides a pragmatic solution for the nation as well as the immigrant. Countries with stable populations have serious economic problems that are solved by immigrants. Policymakers know this, and open or close their nations' gates to foreigners in response to economic conditions.

Japan's population is expected to decline slightly over the next few years. Japan doesn't admit many immigrants. Historically, Japan has been proud of its ethnic homogeneity and Japanese leaders have openly attributed the country's low crime rate and relatively peaceful society to its lack of diversity. However, Japan is quietly reconsidering its historic anti-immigration policies now that its aging population faces looming labor shortages. As life expectancy has increased and birth rates have decreased, Japan has created a nation in which there are not enough young, productive people to provide for the needs of the elderly. Japanese industry is finding it difficult to maintain its productivity and support its retirees at the same time. Journalists and social scientists describe Japan's "population crisis," as a "demographic time bomb," so in spite of a history of isolation in a country whose residents are almost 99 percent pure Japanese (and whose foreign residents are mostly descendants of Chinese and Korean laborers who were born in Japan and speak only Japanese), Japan's government is considering opening the island nation up to new foreign immigrants.

According to Lester Brown's 2008 book, Plan B 3.0: Mobilizing to Save Civilization, about 43 countries around the world have populations that are essentially stable. All 43 of those nations are prosperous. All of them except, so far, Japan, control their populations and their labor forces by opening their doors to immigrants.

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A lot of people, including Lester Brown (who updates his Mobilizing to Save Civilization book series every year), find reason for optimism in the relative economic health of developed nations with stable populations. Those nations seem to provide a model for sustainable prosperity around the world. Our optimism is supported by trends in China, where population growth is beginning to equalize while the standard of living is rising.

On the other hand, the populations of some of the world's poorest countries, including Ethiopia, the Democratic Republic of Congo, and Uganda, are on track to double within 40 years. India is adding about 80 million people a year. Countries like those are providing valuable immigrant labor across the globe, without which many of the rich nations with stable populations would founder, economically.

The growing global population fills in labor gaps where needed, and provides growing markets for international manufacturers. Japanese automakers sold about 9.5 million new cars across Asia in 2008, mostly in countries other than Japan. In fact, auto sales in Japan are falling steadily while they grow in countries with expanding populations. As I write this, Ford Motor Company is publicizing the introduction of its new subcompact car called the Figo in India. The company's executives say they see very little growth in the U.S. or European markets. So they are going where the customers are, that is, to a nation with a growing population and a growing economy.

India, China and dozens of other nations are becoming prosperous by providing inexpensive goods and services to the rest of the world. Their large populations provide inexpensive labor. When I call to question a charge on my Visa card, I generally talk to a customer-service representative in India. My bathrobe was made in Turkey. The dress shirts in my closet came from China, Brazil, the Philippines and Honduras.

Indian consumers, in turn, buy Japanese Toyotas, Fords from the United States and Italian shoes. The aging populations of Europe and Japan are not promising markets. Their populations are not expanding and their standards of living are not improving. Growth in the U.S. consumer market, in isolation, would be mediocre. In the U.S., it's particularly difficult to visualize our economy absent the 38 million documented immigrants and at least 8 million to 12 million undocumented foreign workers who both supply inexpensive labor and bolster consumer spending.

Over the past three years, Japan has exported, in goods and services, about 7 trillion yen more, on average, than it has imported, a number equal to more than half the country's gross domestic product over the same time frame. Germany exported 178 billion Euros worth more than it imported. The Netherlands' positive balance of trade was about 32 billion Euros. Wealthy nations with stable populations are dependent on exports to support their prosperity.

Economic expansion depends on population expansion. At least it has for as long as we've been keeping track.

So humanity faces a dilemma. On one hand, the habitat won't allow the human population to expand forever. That just won't work. But if the global population stabilizes, we face an unprecedented economic problem. Prosperity depends on an expanding human population to support our expanding global economy.

A Ponzi scheme, also known as a "pyramid scheme," is a scam in which an unethical financial entrepreneur promises investors big returns, which he fraudulently generates from the contributions of later investors. Bernard Madoff is the most notorious recent perpetrator. He raised tens of billions of dollars from thousands of investors before he went to jail in 2009. New investors heard about the big returns earned by earlier contributors to the scheme and eagerly put their money in, which allowed the con artist to fool several successive new generations of victims over the course of two decades. Every Ponzi artist faces a day of reckoning. Eventually, he runs out of new investors. His actual returns have never been equal to the dividends he paid out, but he made up the difference by draining new accounts. Eventually, he can't pay dividends any more. He doesn't even have the money to return to late investors because he's spent their money paying off earlier contributors building his reputation as a genius.

Our economic dependence on population growth bears a disturbing similarity to a global Ponzi scheme. It's relatively easy to create "economic growth" so long as there are more consumers every year. Directly or indirectly, we are all dependent on population growth for our livelihoods. But eventually, resources run short. Every pyramid scheme eventually collapses when the supply of new investors dries up. If we accept the obvious fact that this planet's resources are not unlimited, then eventually the global supply of new consumers will be constrained.

The connection between population growth and economic prosperity was clearly recognizable 600 years ago. One of the earliest recorded treatises on economic expansion was written by an Arabian philosopher, Ibn Khaldun, in 1377:

"When civilization [population] increases, the available labor again increases. In turn, luxury again increases in correspondence with the increasing profit, and the customs and needs of luxury increase. Crafts are created to obtain luxury products. The value realized from them increases, and, as a result, profits are again multiplied in the town. Production there is thriving even more than before. And so it goes with the second and third increase. All the additional labor serves luxury and wealth, in contrast to the original labor that served the necessity of life."

Six centuries ago an Arabian philosopher understood the basic machinery pretty clearly. Economic growth is generated by population growth, augmented by technology and motivated by improving lifestyles.